Starting a new business is an exciting proposition, but it’s fraught with tension too. Many questions must be answered before your fledgling business gets off the ground. One of the first has to do with the legal structure of the company, also known as a business entity. What types of legal structures exist? What are the advantages and disadvantages of each? And how do you decide which one is right for the new business you have in mind?
Every entrepreneur must answer these questions before moving bringing their vision into reality. Adams Accounting Solutions has coached many business owners through the process of choosing the proper legal structure for their new business venture. Yes, there are tax implications involved in the decision. But other factors come into play, as well.
It’s essential to choose your legal structure wisely when setting up your business. How you structure it impacts your tax rates, legal liability, paperwork requirements, and fundraising ability. It also affects the extent to which your personal finances are tied to the business. While it is possible to change the structure after the company is up and running, the process usually involves lots of paperwork and may leave you open to unintended tax consequences or even the accidental dissolution of the business.
There are five common business structures.
#1. Sole proprietorship. A sole proprietorship is the easiest structure to set up. It’s also the default structure. If you engage in business activities without registering as any other type of business entity, you’re automatically considered a sole proprietorship.
In a sole proprietorship, you are your business. Your personal and business assets have no barrier between them. This can be confusing because revenue coming in tends to get mixed with personal funds if no record-keeping system exists. You can also be held personally liable for the debts and obligations of the business in a sole proprietorship. If the business gets sued, your personal assets may be in danger.
#2. Partnership. A partnership is a company owned by two or more entities. There are two types of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).
In a limited partnership, only one person has unlimited liability, while the rest of the partners are limited. The owners with limited liability also tend to have limited participation in the daily operations and interests of the company.
A limited partnership limits the liability of all owners. No partner is liable for the actions of any other partner. This may be a good solution if you’re starting a business with a buddy.
#3. Limited liability corporation (LLC). An LLC is a hybrid structure that provides the tax benefits and flow-through earnings of a corporation while limiting owners’ personal liability in the event of a lawsuit. Partners’ personal assets are shielded from liability, and income is taxed at the lower individual rate rather than the corporate rate. Owners in an LLC are considered self-employed and have to pay Medicare, Social Security, and self-employment taxes on their own.
#4. Corporation. A corporation is an entity that’s separate from its owners. It operates independently, earning revenues, paying taxes, and being held legally liable for anything that happens in the name of the business. Forming a corporation provides the most protection when it comes to personal liability, but there are many rules that go along with setting up a corporate structure. Setting up a corporation is also quite expensive, which makes this structure less appealing to first-time business owners.
There are several corporate structures, each with nuances you should be aware of before filing any paperwork. Check with your CPA if you’re thinking of setting up a corporation. They can help you work through the differences in corporate structures.
#5. Cooperative. A cooperative may be a good fit if the business will be owned and operated by the people using its services. Members become part of the cooperative by purchasing shares in it and receive some benefit from being a member, for instance, lower pricing on products or services.
Choosing the appropriate legal structure for your new business is a critical decision that will impact the success of your business for years to come. If you still have questions about which legal structure is right for you, call Adams Accounting Solutions. We’re happy to help you sort through the pros and cons of each as it relates to your new business venture!
There comes a time in every business owner’s life when someone they know and respect professionally mentions the need for an adjusting journal entry. If you’re an experienced business person or took accounting classes in college, you might know what they’re talking about. But for the entrepreneurial neophyte, adjusting journal entries are something of a mystery.
An adjusting journal entry is nothing more than an entry in a company’s general ledger that records unrecognized income or expenses for a specific period of time. In other words, adjusting journal entries are used to record income and expenses that haven’t happened yet. These entries are typically made at the end of an accounting period, for instance, the end of the month, quarter, or calendar year. Many companies operate on a fiscal year that’s different from the standard January through December calendar. In that case, adjusting journal entries would also be made at the end of the fiscal year.
Adjusting journal entries can also be used to fix mistakes. If a mistake was made and income or expenses were recorded incorrectly in a previous month, an adjusting journal entry can be recorded to move the income or expense back where it belongs.
There are three common types of adjusting journal entries.
Accruals. Accruals refer to revenues and expenses that haven’t been received or paid yet and have not been recorded through a regular accounting transaction. To illustrate, an example of an accrued expense is rent that’s due at the end of the month. Even though the payment hasn’t been made yet, the company can still use the space all month.
Deferrals. Revenues and expenses received or paid in advance are called deferrals. They’ve been officially recorded in the general ledger but haven’t actually been used or earned yet. For example, money received for goods not yet delivered falls into the unearned revenue category and is recorded as a deferral.
Estimates. Estimates are adjusting journal entries that record non-cash items like depreciation of assets, uncollectible accounts, or inventory.
In the world of accounting, everything has to balance. Adjusting journal entries are used to keep the books balanced during times when regular business practices result in an out-of-balance situation. For example, many businesses function in a way where the delivery of goods occurs at a different time than the payment for those goods. This happens frequently with credit card payments and online purchases that require shipping. It’s quite common for an accounting period to end with such an unbalanced situation unresolved. In this case, an adjusting journal entry is made to reconcile the discrepancies in timing between payments and expenses. Without these adjustments, open transactions would remain on the books with no resolution. And your accountant would have questions for you.
Having a trusted accounting partner on the team is critical for business success, especially when it comes to things like adjusting journal entries and other accounting practices. Your accounting team will help you ensure that all revenues and expenses are properly recorded, office equipment is depreciated appropriately, travel expenses are categorized correctly, and your accounts payable and receivable are reconciled on a regular basis.
Adams Accounting Solutions can do all this and more. We specialize in small business accounting and tax preparation. In addition to helping you set up good accounting practices, we’ll make sure you’re following all federal tax guidelines and help you make the most of any tax deductions you’re eligible for.
If you have questions about accounting-related terms, including adjusting journal entries, give us a call. We’re always happy to help our clients gain a full understanding of the things that impact them and their business. Call or stop by today!
Today’s remote work environment benefits the labor economy in many ways. Not only has it created an arena of happy workers who thrive on offering professional services from wherever they happen to be, but it also provides small business owners with more choices when making decisions that affect the bottom line. Whether trying to fill a new role within the company, looking for someone to help with marketing tasks, or getting temporary help during crunch times, remote workers are there to fill the bill.
One mission-critical task that small business owners rarely think of outsourcing is accounting services. The common perception is that every business should have an accountant or CPA on staff to be successful. But that’s not necessarily true. With secure internet connections, accounting services can be outsourced as easily as marketing or customer service tasks.
Today’s accountants are flexible, meeting clients’ needs in the most convenient manner for them. And many do much more than prepare individual tax returns in the spring.
If you’ve never considered outsourcing your accounting functions, here are a few pros and cons to consider. You may discover that outsourcing your accounting work makes good financial sense for the business.
Outsourcing accounting services is often more affordable and more practical than hiring an in-house accountant for the job. Outsourcing eliminates the overhead costs associated with hiring an employee. Vacation time, healthcare, retirement benefits, and sick days take a toll on the bottom line. Also, outsourcing often gives you access to the expertise of an entire team, which reduces the risk of non-compliance and unreliable financial data — a crucial advantage for new or smaller businesses.
When you started the company, you probably didn’t start it with the intention of becoming an expert in financial management. However, you may be filling that role out of necessity. Instead, your primary focus as the owner should be on the growth and development of the company.
Here’s where an outsourced accounting team can be a valuable asset. With a proactive approach, accountants can identify potential issues before they become major problems, keeping you informed about anything that might impact cash flow or expenses. This level of oversight provides peace of mind and gives you the confidence to make informed financial decisions. It also frees up your time to run the business rather than managing these details.
Unfortunately, fraud is all too common in small to medium-sized businesses where one person manages the accounting. It’s easy for someone to manipulate the books when no one else is looking. This behavior sometimes goes on for years without detection.
Outsourcing the accounting function puts multiple sets of eyes on your financial transactions and accounting processes. Your outsourced accountants are there to provide oversight and ensure the rules are followed, regardless of what’s happening within the company. Fraud can’t be eliminated entirely, but a dedicated team of experts in accounting best practices is far more likely to spot anomalies and bring them to your attention.
Scope creep is a common occurrence in many areas of business. Outsourced services are no different. Before moving forward with any accountant or CPA, it’s crucial to establish clear expectations. Define the scope of the project before committing to anything in writing. This will help minimize the likelihood of incurring additional costs along the way.
Handing over control of financial records can be uncomfortable for any business owner. After all, you’re used to having this information at your fingertips because you’ve been managing it yourself!
To ease the discomfort, establish a detailed onboarding process with your outsourced accountant to define roles, policies, and procedures. This sets expectations and keeps the line of communication open going forward. Choose an accountant you trust, and then let them do the job you’ve hired them to do.
Some business owners worry about handing their financial information to someone who’s not located on the premises. But if you think about it, it’s no different than using an in-house accounting department located in an office in another city. Establishing clear lines of communication is the key to developing a productive, successful working relationship with anyone, regardless of where they are geographically.
At Adams Accounting Solutions, the success of your business is as important to us as the success of our own. We’ll work with you to ensure all financials are accurate, accounting guidelines are met, and anything that could impact the business from an accounting standpoint is identified and controlled for.
Give us a call for more information on outsourcing accounting services for your small business. We’ll take the burden of financial management off your shoulders so you can focus on running the business!
It’s not uncommon for a visionary with a big idea to sit down, jot some notes on the back of an envelope, and then get to work on a business plan. They’ve seen a gap in the consumer marketplace and know how to fill it. Before they know it, the doors are open, and products and services are flying off shelves and out the door. That’s when they realize they’re running like mad to keep their head above water.
Part of the reason it’s so difficult for new business owners to keep up initially is that they’re wearing too many hats. Once they start selling products, they realize there’s much more to keeping a business afloat than just selling. Administrative tasks also need attention, like accounting, bookkeeping, inventory management, and human resources. If the business is thriving, it’s more than one person can handle on evenings and weekends.
Budding entrepreneurs often don’t understand the importance of having an accounting professional on board before the business is actually up and running. But it’s a critical first step in building a viable and sustainable business.
A trusted accountant helps alleviate some of the burden of starting and running a new business. Here are just a few ways they can help with your business startup.
Advice. Accountants are pros when it comes to the ins and outs of various business structures. A certified public accountant (CPA) can help determine which business structure best suits your new startup. Should you consider a partnership? Do you need an LLC? Can you handle it as a sole proprietor? Or should you incorporate it? These are questions to consider when setting up your new business. Your accountant can advise you on the tax implications of each.
Organization. Accountants can also advise new business owners on the best way to organize the back office from the very beginning. Rather than stuffing receipts in a shoebox until tax time, they’ll likely recommend setting up files and entering receipts into an automated bookkeeping application such as QuickBooks Online. Having a back-office system in place makes keeping up with business growth in the early stages much easier.
Education. Many new entrepreneurs have started a business with a great idea, only to fail later on because they have no business background. While having a business degree isn’t a prerequisite to starting a business, nor is it a guarantee of business success, knowing a thing or two about business finance is helpful. Dealing with cash flow management, budgets, profit and loss statements, business expenses, EBITDA, and ROI is confusing and overwhelming. Your accountant understands all this and will educate you on the basics.
Goal-setting. Most accountants have experience with different-sized businesses, so they understand what it takes to meet company goals at every growth stage. An accountant will help you determine which goals are short-term vs. long-term and help you come up with a business plan designed to help you achieve the long-range vision you have in mind.
Tax preparation and advice. Having an accountant on staff or on call in your new business is critical when it comes to tax preparation and accounting needs. Many factors impact a company’s bottom line at tax time. Employing an accountant who’s well-versed in small business tax preparation and accounting is one of the best ways to ensure your new business gets off the ground — and stays in flight!
When you hire Adams Accounting Solutions, you get all this and more. We like to think of ourselves as part of the team. We work with you as you prepare to launch your new business, ensuring that you have the right systems and safeguards in place along the way. We also guide you through the tax preparation process, helping you make the most of any eligible deductions and preserving as much of your hard-earned revenues as possible.
If you’re thinking of starting a new business, call us at 913-888-9100. We’ll talk you through some of the things you need to know and help you get your new baby off to a good start!
Revised 6.23.23
Effective June 1, residents can apply for a possible earnings tax refund for years 2018 through 2022. This process can be initiated through the end of 2023.
This is a one-time opportunity. Starting in 2024, eligible residents must file taxes by the federal tax deadline in order to be considered for an earnings tax refund.
For more information, click here.
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Do you live in Kansas City, Missouri? If so, you’re familiar with the 1% Kansas City earnings tax. People living in Kansas City have to pay it, even if they work in another part of the Kansas City metro area. This tax is also collected from individuals who live on the Kansas side of the state line but work in Kansas City, Missouri. This is one of the complications associated with living and working in a metro area that includes two states.
The earnings tax in Kansas City, Missouri, generates revenue that’s used for a variety of city services used by everyone who lives in the Kansas City metro region. This includes the maintenance and improvement of city parks, road repairs, trash collection, snow removal, and the funding of emergency and first-responder teams, among others.
In past years, taxpayers who were owed a refund of the earnings tax would simply file their taxes and then wait for the check. Not so anymore. On March 2, 2023, the KCMO City Council approved a new process, which included submitting additional items to support the request for a refund due to overpayment of the earnings tax.
Taxpayers had to:
The catch here is that the City Council did not publicize this. In fact, they stated that taxpayers who didn’t submit the proper documentation by the required deadline would be denied. They also stated that taxpayers could request a six-month extension to file the return, as long as they complied with city ordinances for validity.
Think about the timeline here. The new process was approved on March 2, 2023; the filing deadline was April 18, 2023. That’s only a little over six weeks for taxpayers to figure this out and file for a refund under the new process. Or forgo their refund forever, leaving the money in the city coffers.
We suspect a budget shortfall. The earnings tax generates approximately $292.2 million annually for Kansas City, Missouri. However, it takes much more than that to run a city. The City Council just approved a $2.06 billion budget for fiscal year 2023-2024.
Here’s a quote from the kcmo.gov website that explains it better than we can:
“With the passage of our $2 billion budget today, I am proud to see the City recovering from budget shortfalls suffered as a result of the pandemic—helping ensure we can invest in the issues which matter most to Kansas Citians, such as trash collection, road resurfacing and affordable housing, and helping ensure we can pay the City workforce tasked with delivering on these services a fair wage,” said Mayor Lucas. “Still, Kansas City government is spending at a faster rate than we’re bringing in new revenues, which, without continued fiscal responsibility, will result in significant structural imbalances in the years to come. I thank my council colleagues, our Finance team, and all of our City departments who identified cost-savings opportunities and who have continued their diligent work to keep Kansas City in a healthy fiscal position. I am proud of this budget and all it will do to help us ensure Kansas City remains a great place for all to live.”
Taxpayers who regularly work with a certified tax professional have an edge in situations like this. CPAs are required to stay up-to-date on the many changes in tax laws that occur at both the federal and local levels. These professionals had a slim window of opportunity to educate clients on this change and get the required documentation filed before the April 18 deadline. Even so, many taxpayers may have been left hanging due to a lack of transparency by the City Council.
At Adams Accounting Solutions, it’s our job to stay on top of tax changes at the federal and local levels. We educate clients on the impact these changes may have on their situation. Give us a call or stop by our office if you have questions about the Kansas City earnings tax or ways in which you may be affected by this change. We’re happy to help you sort it out.
Filing your taxes can be stressful. Finding out that you’re getting a tax refund brings relief from that stress. But before you go on a shopping spree or book an extravagant vacation, give some thought to how you want to spend that money. Yes, it’s fun to go out and splurge. But a tax refund can also be a valuable opportunity to improve your financial well-being.
Before spending a penny of your refund, you might want to create a plan for it. Without it, you’re more likely to succumb to the temptation to spend the money on frivolous items. Before the check arrives, take some time to think about your financial goals and how this money might help you achieve them. Once you have your goals in mind, you can create a plan for using your refund to achieve them.
It’s also important to consider the amount of the refund. If it’s good-sized, it may be tempting to spend it all at once on something exciting — a dream vacation, for instance. But it’s important to remember that this money isn’t free. It’s actually your hard-earned income being returned to you. When you think of it that way, it’s a little easier to plan responsibly for what to do with it.
With a plan in place, it’s time to consider some responsible ways to use your tax refund. Here are a few ideas to get you started.
If you have outstanding debt, using your tax refund to pay it off is a smart move. Not only will it help you get out of debt faster, but it also saves you money in the long run by reducing the amount of interest you pay. Pay off high-interest debt such as credit cards and personal loans first. Once those are gone, focus on other types of debt, such as student loans or a mortgage. Every little bit helps, so even if you can only pay off a small portion of your debt with your refund, it’s a step in the right direction.
Building up or establishing an emergency fund is another good way to use a tax refund. This money can provide a boost toward the goal of saving at least three to six months’ worth of living expenses in case of job loss, medical emergencies, or other unexpected events. Having a robust emergency fund set aside for unanticipated events brings peace of mind and the reassurance that you can handle whatever comes your way.
Retirement may seem a long way off, but it’ll be here before you know it. Investing in your future is another smart way to use your tax refund. Consider using the money to open or contribute to retirement accounts, such as an IRA or 401(k). The earlier you start saving for retirement, the more time your money has to grow.
Using your tax refund for home improvements or repairs could be a wise step if you own a home. Upgrades like a new roof or energy-efficient windows can increase the value of your home and often lower your utility bills. Making repairs around the house that prevent further damage may also save you money in the long run. Just be sure to prioritize necessary repairs over cosmetic upgrades that don’t add much value.
While it’s important to be responsible with your tax refund, it’s also okay to treat yourself occasionally. If you’ve been saving up for something special, like a new computer or a vacation, consider using a portion of your refund to make that purchase. Just be sure to balance your splurge with your financial goals and avoid overspending.
Adams Accounting Solutions is here for all your tax-related needs. Whether you’re filing an extension this year or have already filed your return and are eagerly anticipating a refund, we’re here for you. Our goal is to assist clients in creating the best financial future possible. Give us a call today to schedule an appointment or ask questions. We look forward to hearing from you!
Tax season is the time of the year that many people dread most. Filing taxes is a daunting task, especially if you’re not familiar with the process or good with bookkeeping. Fortunately, there are tax professionals who can help!
Adams Accounting Solutions specializes in handling all aspects of small business and individual tax return preparation. We keep up with ever-changing tax codes so we can explain changes to our clients and apply them to each return we work on. Our goal is to help clients make the most of their unique situations at tax time.
That being said, we’ve learned during our years in business that not everyone wants to use a licensed CPA or accounting firm to do their taxes. There are some out there who feel confident they can do the job themselves — with the help of one of the many tax prep software solutions on the market. Since we believe that educated clients make the best decisions, let’s look at some of the advantages and disadvantages of using tax preparation software. Whether you’re a small business owner or an individual taxpayer, we want you to have the knowledge you need to make the right decision for your situation.
Tax preparation software packages shine when it comes to less complex tax situations. They’re a good solution for individuals with simple tax returns where relatively few inputs are needed. If your situation is more complicated, your tax return may still be a challenge, even with automated software.
The tax return filing process is often accelerated by using tax prep software. If you find yourself with free time on a weekend, you can sit down at the computer and knock it out in just a few hours. Your tax return will be off to the IRS in no time. And you didn’t have to make an appointment with anyone or have long drawn-out conversations about it!
One thing to keep in mind is that if you’re ever audited, the software company probably won’t be any help. A licensed CPA, however, will. Most accounting professionals go to bat for their clients during an audit, interfacing with the auditor and answering questions about the way the return was prepared.
Most people with simple tax needs are fine with the cost of tax preparation software. It’s nearly always less expensive than hiring an accountant.
As with most things, there’s a flip side to all this. One of the significant drawbacks of using tax software is the potential for errors. While software can reduce errors, it’s not foolproof. Users occasionally make errors when entering information, resulting in an incorrect or incomplete tax return. Also, the software may not be able to handle complex tax situations.
Another drawback of using tax software is the lack of personalization. While this tool guides users through the process of filling out tax forms, it can’t provide the personalized help and advice that professional accountants can. Each taxpayer’s situation is different, and software only goes so far in pulling information together for a tax return. The guidance of a tax specialist is invaluable.
If you’re tech-savvy and have simple tax needs, doing taxes yourself using tax prep software may work well for you. But even the simplest software requires a basic level of computer skill that some people just don’t have. If you’re not comfortable with technology, you may end up more frustrated than anything else.
Instead of worrying about whether tax prep software will work for your situation, give us a call at Adams Accounting Solutions instead. We’re the experts when it comes to tax preparation and filing. We’ll consult with you, help you gather the required documentation, and guide you through the process to get your tax return filed on time. Whether you own a thriving business, have multiple rental properties, or just need to file an individual return, we can help. Make an appointment today!
Many independent contractors and small business owners have discovered the beauty of PayPal. This popular electronic payment system makes it easy to quickly pay others and get paid for products and services sold without the delay caused by old-fashioned snail mail. Since timing often plays a role in the success of small businesses, the speed and convenience of PayPal are appreciated by many contractors, freelancers, and small business owners.
But come tax time, these same people start wondering where third-party payment systems like PayPal fit into the picture. What are the implications of using PayPal? Understanding how this vendor fits into the tax scene can be challenging, but it’s important to try if you want to avoid potential issues with the IRS.
One question we often hear around tax time at Adams Accounting Solutions is whether or not PayPal sends 1099 forms out at the end of the year. The short answer to this one is maybe.
Let’s start with a quick recap. There are several types of 1099s, each with its own purpose. Form 1099-MISC is the most common for freelancers and independent contractors and is used to report income earned from sources other than wages, salaries, and tips. If you’re self-employed, you probably receive 1099-MISC forms from the clients you worked for in the past year. The IRS sets a minimum earnings threshold of $600 per entity. In other words, if you earn $600 or more from a client, they’re required to send you a 1099-MISC at the end of the year.
Form 1099 isn’t just for income earned as a contractor or freelancer, though. The IRS also requires a 1099-MISC to be issued for any individual or business paid $600 or more for non-employee services during the year. This includes payments made by check, cash, credit card, or PayPal. This is the flip side of the coin in the previous paragraph.
The 1099-K from PayPal is slightly different from the 1099-MISC. The 1099-K is used to report the gross amount of payments received through PayPal rather than the net amount received after fees are deducted. This means the 1099-K includes all payments received through PayPal, including refunds, disputed payments, and payments received for goods and services.
Not everyone who uses PayPal gets a 1099-K. The vendor is only required to send a 1099-K if you meet both of the following criteria, which apply to tax years through 2022:
Effective in tax year 2023, the IRS is lowering the reporting threshold for PayPal payments to $600 per calendar year and removing the 200-transaction requirement.
Remember that whether you receive any 1099s or not, you are still required to report all income received from any sources on your tax return.
If you’re looking for your PayPal 1099-K in the mailbox, forget it. It’s an online transaction platform, after all. Your 1099-K will be available in your PayPal account under the “Tax Documents” section by January 31 of the following year.
If you received income through PayPal but don’t receive a 1099-K, you can access your transaction history to calculate the total income received. To do this, log in to your PayPal account and click on the “Statements and Taxes” tab. From there, you can create a custom statement, filtering your transactions by date range.
Understanding 1099s is an important part of running a business, and when questions arise, it’s good to have someone to call. For help with all aspects of tax planning, including 1099s and business-related tax deductions, give Adams Accounting Solutions a call. We’ve been helping clients with their tax needs for over 25 years. We’d love to help you too!
Estimated tax payments are confusing for many entrepreneurs, freelancers, and contractors. Business owners in these categories don’t usually have an accounting or finance background, but they are focused on the bottom line. It makes sense to question whether it’s really necessary to keep up with estimated tax payments. Can’t they just pay their taxes in one lump sum at the end of the year instead?
The truth is that failing to keep up with estimated tax payments can lead to trouble. The good news is that with a little bit of planning and organization, you can easily stay on top of estimated tax payments and avoid these headaches.
Estimated tax payments are payments made to the IRS each quarter based on a company’s projected income and tax liability. These payments are typically made by self-employed individuals who don’t have taxes automatically withheld from their paychecks. Taxpayers who receive income that’s not subject to withholding taxes, such as rental or investment income, should also make estimated tax payments.
Income taxes are a pay-as-you-go deal. When you work for an employer, the employer takes taxes out of each paycheck. The purpose of estimated tax payments is to ensure that self-employed individuals are doing the same thing — paying taxes throughout the year as the income is earned.
The most significant benefit of keeping up with estimated tax payments is avoiding any penalties or interest charges the IRS assesses for underpayment of taxes. If you don’t make estimated tax payments, you may be subject to a penalty of up to 5% of the unpaid tax for each month or partial month that the payment is late. Also, interest accrues on any unpaid tax from the date it was due until the date it’s paid in full. These penalties and interest charges add up quickly, so it’s important to stay on top of your estimated tax payments to minimize the amount you have to pay overall.
Another benefit of keeping up with estimated tax payments is that it helps you budget throughout the year. When you make quarterly payments, you’re essentially spreading out your tax liability over the course of the year. The payments are smaller, which makes them easier on the budget. This is especially helpful for freelancers or small business owners who experience fluctuations in their income from month to month.
Lastly, not making estimated tax payments is sometimes a red flag for the IRS. It could trigger an audit — something that everyone would rather avoid!
If you suspect that you should be making estimated tax payments but don’t know where to start, Adams Accounting Solutions can help. We’ll help you determine your expected income and tax liability for the year, calculate your estimated tax payments, and ensure that you stay on track with them during the year. We can also provide you with valuable advice on how to minimize your tax liability and take advantage of any available deductions or credits.
Give us a call today to schedule an appointment to go over your estimated tax payment situation. We’ll answer your questions and help you get organized, so you don’t have to worry about it for the rest of the year!
Pretty much no one likes doing taxes — except for accountants! But, like it or not, tax day rolls around every April. The first quarter of every year is typically spent in a flurry of paperwork as tax-paying individuals and small businesses hunt down the documents their accountants need to get their tax returns filled out. If they know they’ll get a refund, they’re slightly more motivated to get this done. However, if they think they might owe money, pulling together the required documents takes a lot more effort.
Tax day is April 18 this year. That date may seem a long way off, but it’ll be here before you know it. Starting work on your taxes now has benefits aside from the peace of mind that comes with completing a task ahead of a deadline. Here are a few other benefits to filing before the April 18 deadline.
#1. Get your refund as soon as possible. The number one reason people are motivated to file their taxes early is that they’re expecting a refund. The sooner the IRS receives a tax return, the sooner it gets into the queue for processing. Filing your return electronically speeds this process up too. The IRS allows 45 days to issue a refund, but most arrive within three weeks or so. If you expect a refund this year, get your tax return filed as soon as possible.
#2. Figure out what you’ll owe so you can develop a payment plan. Preparing and filing your tax return early in the year gives you a head’s up on how much you’ll owe on tax day. Knowing this number well in advance of the payment date gives you a chance to assess your resources and come up with the money if you don’t already have it set aside. Remember that even if you file early, you don’t have to pay until April 18.
#3. Protect your identity. In 2021, the FTC reported more than 111,000 cases of tax-based identity theft. Most tax fraud situations occur when someone besides you files a tax return with your name and social security number on it. They’re hoping to claim a tax refund if there is one.
One of the best ways to prevent this is to beat the thieves to the punch by filing early yourself. When you file early, you decrease the chance that anyone else can file a return using your taxpayer information.
If you can’t file early for some reason, you can still protect yourself by setting up an account on the IRS website and creating your own Identity Protection PIN. No one else will be able to file a return using your taxpayer information without that secret six-digit number.
#4. Know when to get help. Starting the tax prep process early in the year gives you a chance to see how it goes before you run up against the filing deadline. If you get stuck somewhere, you may need to call for help. While many individuals do fine filing taxes themselves using one of the many tax preparation software packages on the market, many others don’t feel comfortable doing taxes on their own. If you’re not sure of what you’re doing, it’s okay to call someone who does.
If you need help gathering documents and preparing your taxes this year, give Adams Accounting Solutions a call. We specialize in tax preparation services for both individuals and small businesses. We’ll advise you on what type of documentation you need, get your return filled out, and file it for you well in advance of the filing deadline. Call today to schedule an appointment!
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.